Role of Advisory Board
Boards serve a useful purpose, whether they are advisory boards or have a fiduciary responsibility. At the end of the day, any board should help to build a stronger, more profitable business. A board’s utility is directly related to the investment made in having a useful board. This includes thoughtful director selection, education and regular meetings to get ideas and engagement.
What is any board’s most useful impact? To quote Donald Rumsfeld, it is creating awareness of the “unknown unknowns” that can impact a business, then helping management with thinking them through. It can also bring practical experience, that is not resident inside the company, to bear on specific issues that the company faces in its strategy and execution.
With the exception of an advisory board with product or market specific requirements, a good board is composed of people with a diversity of background and views with a common goal of helping the company improve its performance. This is true for board of directors as well as an advisory board.
An advisory board is more free-wheeling than a board of directors, which has legal and fiduciary responsibilities that an advisory board does not. An advisory board can be created on an ad hoc basis for a specific purpose or period of time or it can be a longer term board for management support. Owners or executive leadership can dictate the role the advisory board plays.
I sat on a advisory board for a business in management transition. The owner was transitioning to a non-owner CEO and wanted a board to help guide the new CEO. It lasted two years until the new CEO felt that he was on top of everything and then it ended. Another advisory board on which I sat was strictly to help a start up tech company grow its business. Both were paying positions but the compensation was different because the circumstances and needs were different. Feel free to ask me about the differences by emailing me at email@example.com.
Creating an Advisory Board
In setting up a board it is best to be clear about what the role of director or advisor is to be, what kind of skills are needed on the board, and what time commitment is expected. It is also a good idea to have some way to measure the investment of time,energy and money by setting expectations and expected outcomes. Sometimes expected outcomes are less clear and impossible to measure. Knowing these will help management determine its own time commitment to a board, what kinds of people and skills should be around the table and how much time will be expected from all parties. Of course the role of the board and the expectations from it can and will change over time, but a good starting point is important.
On January 29, I will be on a panel in Brockton MA discussing the role of advisory boards in private businesses put on by Sharkansky LLP. I hope you will come and participate.